Horizon Bancorp Announces Record Earnings For 2010

(NASDAQ:HBNC) – Horizon Bancorp today announced its unaudited financial results for the three and twelve month periods ended December 31, 2010.

SUMMARY:

Horizon’s 2010 results represent the Company’s eleventh consecutive year of record earnings.

Horizon’s net income for the twelve months ended December 31, 2010, was $10.5 million or $2.71 diluted earnings per share compared to $9.1 million or $2.37 diluted earnings per share for the prior year.

Horizon’s fourth quarter 2010 net income was $2.9 million or $.75 diluted earnings per share, a 37.7% increase from the same period in 2009.

The net interest margin increased to 4.01% for the three months ending December 31, 2010, primarily as a result of the decrease in the rate paid on interest bearing liabilities during the quarter.

Horizon’s residential mortgage loan activity provided $2.0 million of income from the gain on sale of mortgage loans during the fourth quarter.

Total loans decreased during the fourth quarter as the balance of mortgage warehouse loans decreased $70.1 million from September 30, 2010 as a result of rising long term mortgage interest rates.

The ratio of allowance for loan losses to total loans increased to 2.11% from 1.85% at September 30, 2010 as Horizon’s loan and lease loss reserve increased for probable incurred losses inherent in the portfolio. In addition total loans decreased.

Horizon’s net loans charged off increased during the fourth quarter to $1.6 million compared to $1.2 million during the third quarter of 2010.

Horizon’s balance of Other Real Estate Owned (“OREO”) and repossessed assets decreased approximately $1.5 million, to $2.7 million, during the fourth quarter as properties were sold.

Horizon’s non-performing loans decreased by approximately $252,000 from September 30, 2010 to December 31, 2010 and 30 to 89 days delinquent loans decreased $3.2 million during the same period.

Horizon’s 30 to 89 day loan delinquencies were 0.66% and 0.93% of total loans at December 31, 2010 and September 30, 2010, respectively.

Horizon’s non-performing loans to total loans ratio as of December 31, 2010 was 2.38%, which compares favorably to National and State of Indiana peer averages 1 as of September 30, 2010 of 4.91% and 2.73%, the most recent data available.

On November 10, 2010, the Company completed the redemption process to reduce the US Treasury’s preferred stock investment by $6.25 million, which represents a 25% reduction.

Horizon’s capital ratios continue to be above the regulatory standards for well-capitalized banks.

Craig M. Dwight, Chief Executive Officer of Horizon Bancorp stated, “We are proud of Horizon’s 2010 performance and our eleventh consecutive year of record earnings. We believe Horizon’s continued success reflects our business expansion strategy and focus on a balanced mix of revenue streams that are in counter-cyclical businesses. While we anticipate some slowing of the mortgage lending business, which has been very strong during the past several years, we have strong and proven commercial lending teams in place to generate opportunities in line with the general economic improvement occurring.”

“One of our key goals in 2011 is to build core deposits to help maintain a low cost of funding. Our strong capital position enables us to pursue organic growth and acquisition opportunities. Our acquisition of American Trust & Savings Bank in 2010, for example, added $100 million in deposits, of which 70% were core deposits. We believe bank market fragmentation and Horizon’s competitive strength will generate opportunities to grow and build market share in Northern Indiana and Southwest Michigan.”

Dwight explained the Company plans to continue to invest in people and activities that directly support net income generation. For instance, he noted that while non-interest expense increased in 2010 compared with 2009, a significant portion of this increase reflected new facilities and income-generating personnel, as well as bonuses paid based on exceeding individual and branch profitability goals. “Our performance-based corporate culture is a fundamental part of our ability to motivate and reward a talented group of people, and to attract the best bankers possible to support further growth,” he noted.

Performance Highlights:

Net income for the fourth quarter of 2010 was $2.9 million or $.75 diluted earnings per share. This compares to $2.1 million or $.53 diluted earnings per share for the same quarter of the prior year. Net income for the twelve months ended December 31, 2010 was $10.5 million or $2.71 diluted earnings per share. This compares to $9.1 million or $2.37 diluted earnings per share for the same period of the prior year.

Diluted earnings per share for both the three and twelve month periods ending December 31, 2010 and December 31, 2009 were reduced by $.11 per share and $.42 per share, respectively, due to the preferred stock dividends and the accretion of the discount on the preferred stock held by the U.S. Department of Treasury. The Company repaid $6.3 million of such preferred stock on November 10, 2010, which, will reduce the amount of dividends paid on the preferred stock starting in the first quarter of 2011 by approximately $78,000.

Net interest income increased $1.7 million and $2.8 million for the three and twelve month periods ending December 31, 2010 compared to the same time periods for the prior year. This increase was primarily due to a decrease in interest expense resulting from a decrease in the cost of funds. The net interest margin increased to 3.80% for the twelve months ending December 31, 2010 compared to 3.66% for the same period in the prior year. The net interest margin increased throughout 2010. For the three months ending March 31, 2010, June 30, 2010, September 30, 2010, and December 31, 2010, the net interest margin was 3.55%, 3.78%, 3.84%, and 4.01%, respectively. The increase in the net interest margin during the fourth quarter of 2010 was primarily due to the reduction in cost of funds from repricing wholesale funding into lower rate instruments.

The provision for loan losses was $2.7 million for the three months ending December 31, 2010, which was approximately $1.0 million less than the provision for the same period of the prior year. The 2010 fourth quarter provision was approximately the same as the third quarter of 2010.

Non-performing loans totaled $21.4 million on December 31, 2010, down slightly from $21.7 million on September 30, 2010 and up from $17.1 million on December 31, 2009. As a percentage of total loans non-performing loans were 2.38% on December 31, 2010, up from 2.22% on September 30, 2010 primarily due to a decrease in total loans as the mortgage warehouse loan balance decreased during the quarter.

Horizon’s non-performing loans to total loans ratio as of December 31, 2010 compares favorably to National and State of Indiana peer averages 1 of 4.91% and 2.73%, respectively, as of September 30, 2010, the most recent data available.

The decrease of non-performing loans from the prior quarter was primarily due to lower non-performing commercial and installment loans, partially offset by higher non-performing real estate loans. Non-performing commercial loans declined from $8.9 million on September 30, 2010 to $8.1 million on December 31, 2010. The decline was due to charge-offs totaling $549,000, and one loan with a balance of $393,000 on September 30, 2010 being brought current while only two new loans totaling $76,000 were added to non-performing status during the quarter. No commercial loans were moved to OREO during the quarter. Real estate nonperforming loans increased from $8.5 million on September 30, 2010 to $9.3 million on December 31, 2010. Installment non-performing loans decreased from $4.4 million on September 30, 2010 to $4.0 million on December 31, 2010.

Real estate and installment non-performing loans on December 31, 2010 include $1.8 million and $2.3 million, respectively, of loans in bankruptcy. This compares to $0.9 million and $2.3 million on September 30, 2010. These loans are not considered troubled debt restructures (TDR’s) while they are going through bankruptcy, a process that can take six to eighteen months. The increase in the amount of loans in bankruptcy included in the Company’s non-performing loans indicates that this cycle potentially has not peaked. The Company’s experience with bankrupt loans has demonstrated that some debtors continue to make payments during the bankruptcy process, many reaffirm when they come out of bankruptcy, and some loans are discharged or restructured by the court. The Company has been accumulating historical data on the performance of loans going through the bankruptcy process and utilizes that data in the calculation of the allowance for loan losses. Currently only two commercial loans totaling approximately $170,000 are in bankruptcy.

TDR’s are also included in the non-performing loans total. TDR’s increased from $3.9 million on September 30, 2010 to $4.4 million on December 31, 2010. Of these, $3.6 million were real estate loans, $574,000 were commercial loans, and $202,000 were installment loans. The increase was primarily due to the addition of one commercial loan totaling $153,000. Only $278,000 of all TDR’s were on non-accrual as of December 31, 2010.

Non-accrual loans totaled $16.7 million on December 31, 2010, similar to $17.0 million on September 30, 2010, but up from $11.9 million on December 31, 2009. On December 31, 2010, non-accrual loans to hotel owners totaled $4.5 million, to home builders and land developers $1.2 million, and to restaurant operators $1.0 million. Loans 90 days delinquent but still on accrual totaled $358,000 down from $833,000 on September 30, 2010, and down from $1.8 million on December 31, 2009. Horizon’s policy is to place loans over 90 days delinquent on non-accrual unless they are in the process of collection and a full recovery is expected.

Other Real Estate Owned (OREO) totaled $2.7 million on December 31, 2010, down from $4.0 million on September 30, 2010, but up from $1.7 million on December 31, 2009. During the quarter 11 properties with a book value of $934,000 as of September 30, 2010 were sold. Another four properties were written down by $187,000. No properties were transferred into OREO during the quarter. On December 31, 2010, OREO was comprised of 17 properties. Of these, seven totaling $2.0 million were commercial and ten totaling $684,000 were residential real estate. There was no repossessed personal property on December 31, 2010, down from $107,000 on September 30, 2010. Horizon currently has $1.7 million of OREO under contract to sell with closing dates scheduled within the next 90 days.

No mortgage warehouse loans were non-performing as of December 31, 2010, September 30, 2010, or December 31, 2009.

The residential mortgage loan activity during the fourth quarter generated $2.0 million of income from the gain on sale of mortgage loans, up $763,000 from the same period in 2009 but down $464,000 from the third quarter of 2010. For the twelve month period ended December 31, 2010, gain on sale of mortgage loans was up $1.4 million compared to the same twelve month period in 2009.

Increased pre-payments on the mortgage loan servicing portfolio caused the servicing asset to be impaired during the fourth quarter, resulting in a $202,000 net loss on mortgage servicing net of impairment compared to a $3,000 loss for the same period in 2009.

Total other expenses were $2.0 million higher in the fourth quarter of 2010 compared to the fourth quarter of 2009 and $4.8 million higher when comparing the twelve month periods ending December 31, 2010 and 2009. Salaries and employee benefits increased $1.2 million and $2.9 million for the three and twelve month periods ending December 31, 2010, respectively. This increase is the result of additional payroll expense from the consolidation of the American Trust & Savings Bank transaction that closed at the end of the second quarter, the expansion into Kalamazoo, Michigan, and bonus accruals based on the Company’s performance through twelve months of 2010. The Company also continues to experience higher loan expense related to problem loan, bankruptcy, and collection costs. In addition, the Company recognized $664,000 of transaction costs related to the purchase and assumption of American Trust & Savings Bank during the twelve months of 2010.

Other items

On November 3, 2010, the Company received approval to redeem 25%, or $6.25 million, of the US Treasury’s original $25.0 million preferred stock investment in the Company from the Capital Purchase Program, which is a program of the Troubled Assets Relief Program (“TARP”). On November 10, 2010, the Company completed the redemption process reducing the US Treasury’s preferred stock investment in the Company to $18.75 million. This repurchase will result in annual savings of $312,500 or $0.09 per share, due to the elimination of the associated preferred stock dividends. The Company’s plan is to repurchase the remaining preferred stock over the next three years from the Company’s earnings or may seek to replace such amount through the recently announced Small Business Lending Fund program which is part of the Small Business Jobs Act of 2010.

Horizon Bancorp is a locally owned, independent, commercial bank holding company serving Northern Indiana and Southwest Michigan. Horizon also offers mortgage-banking services throughout the Midwest. Horizon Bancorp may be reached online at www.accesshorizon.com. Its common stock is traded on the NASDAQ Global Market under the symbol HBNC.

Statements in this press release which express “belief,” “intention,” “expectation,” and similar expressions, identify forward-looking statements. Such forward-looking statements are based on the beliefs of the Company’s management, as well as assumptions made by, and information currently available to, such management. Such statements are inherently uncertain and there can be no assurance that the underlying assumptions will prove to be accurate. Actual results could differ materially from those contemplated by the forward-looking statements. Any forward-looking statements in this release are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

1 National peer group: Consists of all insured commercial banks having assets between $1 Billion and $10 Billion as reported by the Uniform Bank Performance Report as of September 30, 2010. Indiana peer group: Consists of 17 publicly traded banks all headquartered in the State of Indiana as reported by the Uniform Bank Performance Reports as of September 30, 2010.

HORIZON BANCORP

Financial Highlights

(Dollars in thousands except share and per share data and ratios, Unaudited)

December 31

September 30

June 30

March 31

December 31

2010

2010

2010

2010

2009

Balance sheet:

Total assets

$

1,400,919

$

1,485,058

$

1,464,415

$

1,301,660

$

1,387,020

Investment securities

391,939

397,694

410,284

368,752

344,789

Commercial loans

330,017

329,230

326,401

310,664

314,517

Mortgage warehouse loans

123,743

193,848

156,915

96,327

166,698

Residential mortgage loans

162,435

165,234

168,238

135,475

133,892

Installment loans

266,682

270,503

271,241

266,954

271,210

Earning assets

1,307,313

1,387,594

1,360,488

1,200,043

1,249,998

Non-interest bearing deposit accounts

107,606

105,376

99,291

91,482

84,357

Interest bearing transaction accounts

506,031

506,031

529,612

423,315

540,647

Time deposits

371,861

388,076

394,092

358,725

326,704

Borrowings

260,741

318,516

282,137

273,235

284,016

Subordinated debentures

30,584

30,562

30,539

27,837

27,837

Common stockholders' equity

94,066

95,686

92,127

91,371

90,299

Total stockholders’ equity

112,283

120,112

116,512

115,716

114,605

Income statement:

Three months ended

Net interest income

$

13,075

$

12,620

$

11,368

$

10,553

$

11,371

Provision for loan losses

2,664

2,657

3,000

3,233

3,700

Other income

4,961

5,648

4,923

4,374

4,304

Other expenses

11,576

11,257

10,184

9,554

9,558

Income tax expense

926

1,075

592

349

333

Net income

2,870

3,279

2,515

1,791

2,084

Preferred stock dividend

(349

)

(353

)

(352

)

(352

)

(351

)

Net income available to common shareholders

2,521

2,926

2,163

1,439

1,733

Per share data:

Basic earnings per share

$

0.77

$

0.89

$

0.66

$

0.44

$

0.53

Diluted earnings per share

0.75

0.88

0.65

0.44

0.53

Cash dividends declared per common share

0.17

0.17

0.17

0.17

0.17

Book value per common share

28.68

29.17

28.10

27.88

27.67

Tangible book value per common share

26.04

26.50

25.39

25.70

25.45

Market value - high

$

26.99

$

22.60

$

22.81

$

19.50

$

17.25

Market value - low

$

21.89

$

21.15

$

19.48

$

16.44

$

14.31

Weighted average shares outstanding - Basic

3,280,331

3,279,201

3,278,392

3,270,217

3,262,927

Weighted average shares outstanding - Diluted

3,362,118

3,336,634

3,333,768

3,293,192

3,275,588

Key ratios:

Return on average assets

0.79

%

0.90

%

0.75

%

0.54

%

0.62

%

Return on average common stockholders' equity

10.22

12.12

9.33

6.34

7.56

Net interest margin

4.01

3.84

3.78

3.55

3.76

Loan loss reserve to total loans

2.11

1.85

1.77

1.97

1.80

Non-performing loans to loans

2.38

2.22

2.26

2.00

1.92

Average equity to average assets

8.22

8.32

8.67

8.73

8.61

Bank only capital ratios:

Tier 1 capital to average assets

8.60

8.53

8.92

8.83

8.64

Tier 1 capital to risk weighted assets

12.64

11.69

11.89

12.96

11.85

Total capital to risk weighted assets

13.88

12.94

13.15

14.22

13.10

Loan data:

30 to 89 days delinquent

$

5,907

$

9,084

$

8,637

$

10,926

$

9,686

90 days and greater delinquent - accruing interest

358

833

77

345

1,758

Trouble debt restructures - accruing interest

4,119

3,445

3,414

1,183

3,472

Trouble debt restructures - non-accrual

278

463

-

-

-

Non-accrual loans

16,673

16,939

17,682

14,862

11,915

Total non-performing loans

21,428

21,680

21,173

16,390

17,145

HORIZON BANCORP

Financial Highlights

(Dollars in thousands except share and per share data and ratios, Unaudited)

December 31

December 31

2010

2009

Balance sheet:

Total assets

$

1,400,919

$

1,387,020

Investment securities

391,939

344,789

Commercial loans

330,017

314,517

Mortgage warehouse loans

123,743

166,698

Residential mortgage loans

162,435

133,892

Installment loans

266,682

271,210

Earning assets

1,307,313

1,254,781

Non-interest bearing deposit accounts

107,606

84,357

Interest bearing transaction accounts

506,031

540,647

Time deposits

371,861

326,704

Borrowings

260,741

284,016

Subordinated debentures

30,584

27,837

Common stockholders' equity

94,066

90,299

Total stockholders’ equity

112,283

114,605

Income statement:

Twelve months ended

Net interest income

$

47,616

$

44,769

Provision for loan losses

11,554

13,603

Other income

19,906

17,856

Other expenses

42,571

37,812

Income tax expense

2,942

2,070

Net income

10,455

9,140

Preferred stock dividend

(1,406

)

(1,402

)

Net income available to common shareholders

9,049

7,738

Per share data:

Basic earnings per share

$

2.76

$

2.39

Diluted earnings per share

2.71

2.37

Cash dividends declared per common share

0.68

0.68

Book value per common share

28.68

27.67

Tangible book value per common share

26.04

25.45

Market value - high

$

26.99

$

19.45

Market value - low

$

16.44

$

10.50

Weighted average shares outstanding - Basic

3,277,069

3,232,033

Weighted average shares outstanding - Diluted

3,334,598

3,270,723

Key ratios:

Return on average assets

0.75

%

0.68

%

Return on average common stockholders' equity

9.56

8.92

Net interest margin

3.80

3.66

Loan loss reserve to total loans

2.11

1.80

Non-performing loans to loans

2.38

1.92

Average equity to average assets

8.47

8.21

Bank only capital ratios:

Tier 1 capital to average assets

8.60

8.64

Tier 1 capital to risk weighted assets

12.64

11.79

Total capital to risk weighted assets

13.88

13.04

Loan data:

30 to 89 days delinquent

$

5,907

$

9,686

90 days and greater delinquent - accruing interest

358

1,758

Trouble debt restructures - accruing interest

4,119

3,772

Trouble debt restructures - non-accrual

278

-

Non-accrual loans

16,673

11,915

Total non-performing loans

21,428

17,445

HORIZON BANCORP

Allocation of the Allowance for Loan and Lease Losses

(Dollars in Thousands, Unaudited)

December 31

September 30

June 30

March 31

December 31

2010

2010

2010

2010

2009

Commercial

$

7,554

$

7,029

$

6,204

$

6,010

$

5,766

Real estate

2,379

1,957

1,536

1,444

1,933

Mortgage warehousing

1,435

1,441

1,362

1,390

1,455

Installment

7,696

7,603

7,441

7,276

6,861

Unallocated

-

-

-

-

-

Total

$

19,064

$

18,030

$

16,543

$

16,120

$

16,015

Net Charge-offs

(Dollars in Thousands, Unaudited)

Three months ended

December 31

September 30

June 30

March 31

December 31

2010

2010

2010

2010

2009

Commercial

$

426

$

485

$

884

$

1,832

$

527

Real estate

128

86

288

309

146

Mortgage warehousing

-

-

-

-

-

Installment

1,076

599

1,406

986

936

Total

$

1,630

$

1,170

$

2,578

$

3,127

$

1,609

Total Non-performing Loans

(Dollars in Thousands, Unaudited)

December 31

September 30

June 30

March 31

December 31

2010

2010

2010

2010

2009

Commercial

$

8,082

$

8,855

$

9,805

$

7,024

$

9,229

Real estate

9,326

8,467

8,021

6,217

4,819

Mortgage warehousing

-

-

-

-

-

Installment

4,020

4,358

3,347

3,149

3,097

Total

$

21,428

$

21,680

$

21,173

$

16,390

$

17,145

Other Real Estate Owned and Repossessed Assets

(Dollars in Thousands, Unaudited)

December 31

September 30

June 30

March 31

December 31

2010

2010

2010

2010

2009

Commercial

$

1,980

$

2,751

$

623

$

494

$

-

Real estate

684

1,283

2,160

1,581

1,730

Mortgage warehousing

-

-

-

-

-

Installment

-

107

70

101

23

Total

$

2,664

$

4,141

$

2,853

$

2,176

$

1,753

HORIZON BANCORP

Loan Portfolio Detail

Non-

Percent

Specific

Percent of

Loan

Performing

of

Reserves on Non -

Non-performing

December 31, 2010 (Unaudited)

Balance

Loans

Loans

Performing Loans

Loans

Owner occupied real estate

$

232,402

$

5,552

2.39

%

$

1,096

19.74

%

Non owner occupied real estate

40,920

1,772

4.33

%

165

9.31

%

Residential development

8,696

266

3.06

%

17

6.39

%

Commercial and industrial

47,999

493

1.03

%

189

38.34

%

Total commercial

330,017

8,083

2.45

%

1,467

18.15

%

Residential mortgage (includes HFS)

173,801

9,327

5.37

%

969

10.39

%

Residential construction

7,467

-

0.00

%

-

0.00

%

Mortgage warehouse

123,743

-

0.00

%

-

0.00

%

Total mortgage

305,011

9,327

3.06

%

969

10.39

%

Direct installment

24,545

238

0.97

%

976

410.08

%

Indirect installment

128,122

1,431

1.12

%

-

0.00

%

Home equity

114,015

2,349

2.06

%

-

0.00

%

Total installment

266,682

4,018

1.51

%

976

24.29

%

Total loans

901,710

21,428

2.38

%

3,412

15.92

%

Allowance for loan losses

(19,064

)

Net loans

$

882,646

$

21,428

$

3,412

Non-

Percent

Specific

Percent of

Loan

Performing

of

Reserves on Non -

Non-performing

December 31, 2009

Balance

Loans

Loans

Performing Loans

Loans

Owner occupied real estate

$

138,999

$

3,152

2.27

%

$

700

22.21

%

Non owner occupied real estate

100,502

1,677

1.67

%

125

7.45

%

Residential development

16,101

2,343

14.55

%

125

5.34

%

Commercial and industrial

58,915

2,057

3.49

%

725

35.25

%

Total commercial

314,517

9,229

2.93

%

1,675

18.15

%

Residential mortgage (includes HFS)

132,172

4,638

3.51

%

441

9.51

%

Residential construction

7,423

181

2.43

%

71

39.29

%

Mortgage warehouse

166,698

-

0.00

%

-

0.00

%

Total mortgage

306,293

4,819

1.57

%

512

10.62

%

Direct installment

24,908

387

1.55

%

-

0.00

%

Indirect installment

136,600

1,089

0.80

%

95

8.72

%

Home equity

109,702

1,621

1.48

%

1,188

73.29

%

Total installment

271,210

3,097

1.14

%

1,283

41.43

%

Total loans

892,020

17,145

1.92

%

3,470

20.24

%

Allowance for loan losses

(16,015

)

Net loans

$

876,005

$

17,145

$

3,470

HORIZON BANCORP AND SUBSIDIARIES

Average Balance Sheets

(Dollar Amounts in Thousands, Unaudited)

Three Months Ended

Three Months Ended

December 31, 2010

December 30, 2009

Average

Average

Average

Average

Balance

Interest

Rate

Balance

Interest

Rate

ASSETS

Interest-earning assets

Federal funds sold

$ 5,039

$ 3

0.24%

$ 19,331

$ 12

0.25%

Interest-earning deposits

7,114

3

0.17%

8,111

5

0.24%

Investment securities - taxable

293,537

2,205

2.98%

250,223

2,535

4.02%

Investment securities - non-taxable (1)

109,234

1,010

5.48%

107,980

1,060

5.90%

Loans receivable (2)

931,380

14,455

6.17%

873,293

14,043

6.39%

Total interest-earning assets (1)

1,346,304

17,676

5.36%

1,258,938

17,655

5.74%

Noninterest-earning assets

Cash and due from banks

16,052

15,267

Allowance for loan losses

(18,342)

(14,229)

Other assets

99,727

78,634

$ 1,443,741

$ 1,338,610

LIABILITIES AND SHAREHOLDERS' EQUITY

Interest-bearing liabilities

Interest-bearing deposits

$ 901,884

$ 2,473

1.09%

$ 808,363

$ 3,275

1.61%

Borrowings

264,173

1,669

2.51%

288,684

2,685

3.69%

Subordinated debentures

34,946

459

5.21%

27,837

324

4.62%

Total interest-bearing liabilities

1,201,003

4,601

1.52%

1,124,884

6,284

2.22%

Noninterest-bearing liabilities

Demand deposits

111,140

89,137

Accrued interest payable and other liabilities

12,960

9,322

Shareholders' equity

118,638

115,267

$ 1,443,741

$ 1,338,610

Net interest income/spread

$ 13,075

3.84%

$ 11,371

3.52%

Net interest income as a percent of average interest earning assets (1)

4.01%

3.76%

(1)

Securities balances represent daily average balances for the fair value of securities. The average rate is calculated based on the daily average balance for the amortized cost of securities. The average rate is presented on a tax equivalent basis.

(2)

Includes fees on loans. The inclusion of loan fees does not have a material effect on the average interest rate.

HORIZON BANCORP AND SUBSIDIARIES

Average Balance Sheets

(Dollar Amounts in Thousands, Unaudited)

Twelve Months Ended

Twelve Months Ended

December 31, 2010

December 31, 2009

Average

Average

Average

Average

Balance

Interest

Rate

Balance

Interest

Rate

ASSETS

Interest-earning assets

Federal funds sold

$

23,917

$

53

0.22

%

$

25,551

$

56

0.22

%

Interest-earning deposits

8,684

17

0.20

%

7,170

16

0.22

%

Investment securities - taxable

282,507

9,535

3.38

%

247,903

10,813

4.36

%

Investment securities - non-taxable (1)

108,809

4,148

5.45

%

97,913

3,942

5.75

%

Loans receivable (2)

878,181

54,738

6.24

%

892,431

57,836

6.49

%

Total interest-earning assets (1)

1,302,098

68,491

5.40

%

1,270,968

72,663

5.85

%

Noninterest-earning assets

Cash and due from banks

15,341

15,344

Allowance for loan losses

(17,058

)

(12,372

)

Other assets

93,671

77,215

$

1,394,052

$

1,351,155

LIABILITIES AND SHAREHOLDERS' EQUITY

Interest-bearing liabilities

Interest-bearing deposits

$

871,526

$

10,711

1.23

%

$

800,255

$

14,792

1.85

%

Borrowings

264,293

8,476

3.21

%

318,661

11,696

3.67

%

Subordinated debentures

32,005

1,688

5.27

%

27,837

1,406

5.05

%

Total interest-bearing liabilities

1,167,824

20,875

1.79

%

1,146,753

27,894

2.43

%

Noninterest-bearing liabilities

Demand deposits

97,665

84,209

Accrued interest payable and other liabilities

10,466

9,215

Shareholders' equity

118,097

110,978

$

1,394,052

$

1,351,155

Net interest income/spread

$

47,616

3.61

%

$

44,769

3.42

%

Net interest income as a percent of average interest earning assets (1)

3.80

%

3.66

%

(1)

Securities balances represent daily average balances for the fair value of securities. The average rate is calculated based on the daily average balance for the amortized cost of securities. The average rate is presented on a tax equivalent basis.

(2)

Includes fees on loans. The inclusion of loan fees does not have a material effect on the average interest rate.